Mises Daily Articles

Weathering the Census

I realize that the framers of the Constitution required a census be taken every ten years. It was a mistake. It gave too much power to the federal government, power that was certain to be abused.

And yet not even the most thorough search of the writings of the framers indicates that their objective was to help the welfare state do its thing. Its sole purpose was to apportion seats in the House of Representatives, and not even the broadest interpretation of the Constitution suggests that Hamilton, Madison, or Jay thought the federal government had a right to know how many bathrooms are in our houses or the length of time it takes us to get to work.

Our tax dollars are funding a PR campaign to tell us that our privacy must be invaded or else single moms will continue to be denied access to federal day care centers. It doesn’t help matters that the Census bureau recently admitted to lying for 50 years about its central role in the internment of Japanese Americans during World War II. Perhaps this explains why Census Director Kenneth Prewitt feels the need to address the issue of privacy.

In a form letter addressed "To All Households," he writes that information collected by the Census will only be "used for statistical purposes and that no unauthorized person can see your form or find out what you tell us—no other government agency, no court of law, NO ONE." (Emphatic CAPS in original.) In other words, Prewitt is reassuring us that he will follow the law. Of course, the fact that he is addressing the issue at all should raise caution flags. For all we know, our census forms could someday wind up on a table in the White House Map Room.

The federal government needs this data for the same purpose that Proctor & Gamble needs market research, the difference being that P&G will use it to try to meet consumer demands through voluntary exchange, whereas the state will use it force involuntary exchange—to identify municipalities that should be placed on the dole, and those that should fund them.

While P&G’s success depends on access to voluntary capital flows, the government’s success depends on conscripted capital, and the amount of money at stake is enormous. In fact, that rumble of thunder you hear in the distance is the sound of state and city governments pressuring their citizens to fill out their forms so that their annual take of the federal pie won’t decrease.

But should they? As Murray Rothbard pointed out in Power and Market, there are two players in any modern tax system: net taxpayers and net tax consumers. The consumers include anyone whose income is made up of public funds, be they federal, state, or local. In theory, these are people whose purpose in the macroeconomy is to serve the net taxpayers, a theory which today has become laughable, as anyone who has ever tried to fire a public employee has learned. This is a natural consequence of extending the franchise beyond mere property owners.

Rothbard's delineation of the tax system could be extended to the state level, in which some states, on the net, pay for federal wealth transfers, and others, on the net, consume them. High income states like California, Ohio, and New York pay out more in federal taxes than they get back in the form of federal spending, while low income states, like Arkansas, Mississippi, and West Virginia, pay out less than they get back.

The situation makes for a rotten forecast. Why should any wealthy state want to participate in the Census? Participate or not, it loses. From an economic perspective, the state that pays out more than it gets back could provide whatever services that are currently being provided by the Feds and still have funds left over.

But participation in this system is one of the costs of memberships in the United States, and it has been established that attempts to secede are reacted to with violence. (The secessionist solution to oppressive wealth transfers, however, is common among local governments, and it is now being seriously considered in Los Angeles County.)

So what’s a net wealth transfer-paying state to do? The best it can do to weather the current system is encourage the participation of its citizens in the Census to minimize its losses and hope that other states' Census figures are undercounted. This is the only way to deal with a zero-sum game. But poor states shouldn’t kid themselves that they can join the ranks of the rich by encouraging Census participation and the federal dollars that can result.

No state ever became rich by depending on federal wealth transfers. If states did, West Virginia and Mississippi would be today’s Incan empires. Policies that create and attract wealth are no secret. States become wealthy by protecting private property, maintaining a stable system of low taxes, decentralizing its infrastructure, and by minimizing intervention in private capital flows. Such policies, from generation to generation, encourage good work habits, longer time horizons, and increased capital from other states where wealth is less secure.

The Census has become an enemy of such outcomes as its purpose devolved from its Constitutional one. Increasing federal funding to the poor states enables them to avoid these reforms, while at the same time it penalizes rich states for implementing them. The long run consequences of maintaining such a system is a skewing of the incentive structure and a diminution of the ethos of wealth creation that allows states to become wealthy in the first place.

We can be sure that the federal government will broaden its efforts to promote the Census, with the help of the expensive advertising firm of Young & Rubicon. The Census has become its primary engine for finding and buying new constituencies. At the same time, we must remember the full cost of complying with the bathroom counters in Washington. As is usually the case with any government action, unintended costs outweigh its stated benign motives.

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The Mises Daily articles are short and relevant and written from the perspective of an unfettered free market and Austrian economics. Written for a broad audience of laymen and students, the Mises Daily features a wide variety of topics including everything from the history of the state, to international trade, to drug prohibition, and business cycles.